90 seconds at 9 am with BNZ: Focus swings to European crisis and SOE floats after National wins second term; Germany, France scramble for fiscal union; Black Friday sales up 6.6%

Hello Roger : First of all, about the election, wasn't it fun - MMP is so entertaining.

Anyway, like so many, myself included to a point, I doubt the interviewer has spent much time and effort studying money creation, perhaps she would have done well to read Deidre Kent's article in the recent edition of NZ Investor, see link off of here:

http://www.positivemoney.org.nz/default.aspx

Also note the editor, Steve Hart's comment. Another Damascus experience with the scales falling away. Perhaps a trip to Specsavers for you first though Rog?

On Kahuna's and all that, I find this Keen'syian idea less of a worry, it's just trickle up, rather than trickle down, it just puts the money at a different start point. As for treating over-mortgaged homeowners favourably, ahem, what's the difference with treating over-mortgaged banks favourably - and not getting any trickles down, up, sideways, whatever - as has been the case, well unless you're a commodities spec. that is?

Off to Specsavers for you Roger. 

I am truly sympathetic with you Gummy, its rather hard to digest the fact that you have to be prepared to acknowledge that the world doesn't work in quite the way that you've been led to believe. It truly hit home when  I had my own Damascus moment as I read a book written by a prominent monetary reformer by the name of Michael Rowbotham. its been four years since then of exhaustive research, trawling through primary documents written by heterodox economist, and finally the testimony of leading Central Banking authorities which corroborate his word. In fact I later learned that he appeared at a banking reform conference held at Victoria University where he engaged in a debate with an economist from the Reserve Bank of New Zealand. The economist Michael Reddell, happily confirmed Rowbotham's claims and affirmed his view that he actually (obviously) had no problems with the way things worked.

"But to turn to the substance of the matter. It is suggested that there is something very wrong about the fact that most of our money supply is bank-created. Clearly, I disagree.

Note that I’m not disagreeing that “money” is bank-created: a bank loan does typically leads to a new bank deposit, and those bank deposits do make up the bulk of our statistical measures of the “money supply”. It isn’t always so – if I buy your house, my mortgage will probably go up and yours will presumably go down, but in aggregate it is of course true. If there was less borrowing from banks, our measures of the money supply would be lower.

But my sense is that monetary reformers attach far too much importance to money and measures of it - they certainly put far more weight on it than we central bankers do."

http://www.rbnz.govt.nz/speeches/0108922.html

So you don't have any problems with banking authorities and governments recapitalizing zombie banks and bailing out bondholds who failed to subject those who vouchsafed their investments to adequate scrutiny?  In back in 2001, the Reserve Bank commissioned a research paper on the likely ramifications of bank failure, government bailouts, and how such action will contribute towards moral hazard and the likelihood of it occuring again.

"However, once the probability of bank runs has been reduced, banks will hold less liquid assets and less capital than would otherwise be the case. Indeed capital ratios have been declining relentlessly during the past 150 years, from 35% in the 1860s to 4% by the mid 1980s. The banks became more `efficient' intermediaries but, to the extent the risk of failure has increased because of lack of depositor discipline on the banks and risk has been moved elsewhere (to taxpayers or deposit insurance funds), efficiency gains are more apparent than real. The predisposition of governments to bail-out the creditors of failed banks makes all the difference to both the sign and magnitude of the impact of regulation on the efficiency of liquidity transformation and credit origination in the economy."

http://www.rbnz.govt.nz/speeches/0104984.html

For all intents and purposes, I think our banking system, however imperfect is in good hands. The much maligned Alan Bollard is far more capable than given credit for. Economic commentators condemn him for his monetary management, but the problem lies with them, not him. Their condemnation stems from their ignorance of the real constraints that he has to operate within, not his ineptitude.

"Global liquidity has increased dramatically over recent years. In our part of the world, this reflects:

• a surplus of savings relative to investment in the East Asian and oil-exporting countries;
• new players, new products, new transactions and markets; and in particular
• the impact of the “carry trade” fuelling investment flows into a range of markets.

A feature of the period of relatively strong growth in the world economy over the past several years has been large and growing financial imbalances among the world’s major economies. The US current account deficit has increased significantly over this period, although it has stabilised over the past year relative to the size of the US economy. Meanwhile, most East Asian countries have consistently run current account surpluses since recovering from the 1997/98 financial crisis, when many experienced deficits. More recently, the rise in oil prices has underpinned a substantial increase in the surpluses of the oil exporting nations...he strength of exports relative to domestic demand has seen saving outstrip investment in most of these economies – even in the case of China, where investment growth has been very strong. Accordingly, we have the ironic situation whereby a range of developing countries are (in net terms) the providers of capital to some of the world’s most developed economies. This rapidly rising “savings glut” has been a principal source of increased global liquidity...Many of these effects have been clearly welfare-enhancing. But in contrast to how markets might have reacted a decade ago, it has also allowed less disciplined economic behaviour by some households and firms. It has allowed global imbalances, particularly those associated with the contrasting current account positions of the major economies, to build up and persist beyond what might have previously been considered sustainable. It has meant that when large economies operate with distortions in their own markets, those distortions can be felt halfway around the world....No central banker today can ignore these effects on domestic monetary policy. A recent speech by Ben Bernanke[4] observed that financial market globalisation has made the Fed’s analysis much more complex. He notes that even for the US there is no such thing as total monetary independence. For example, correlations between long term interest rates in the US and other industrial countries have risen significantly. Having said that, he concludes that, despite Alan Greenspan’s term of “conundrum”, this has not significantly constrained their ability to influence domestic financial conditions....A further practical constraint for us has been that, although the TWI is influenced by a wide range of global events, in recent years we have not wished to add to upward pressure on the NZ dollar. We have also remained conscious of our obligation to avoid unnecessary instability in output, the exchange rate and interest rates, as required under section 4b of the Policy Targets Agreement. This has meant we have been more cautious in our OCR tightening path than might otherwise have been the case."

http://www.rbnz.govt.nz/speeches/2968727.html

Damn straight.  I hate that we're in this vicious cycle of wasting so much time, money, labour, energy and raw materials for so little return, because short-term profit and constant high turnover is the only priority.  Here's a blog entry I saw a couple of years back that has an interesting angle on it, although it only looks at clothing. 

http://cargocultcraft.com/2010/06/07/the-new-austerity/

One of the investments that I've been making over the past few years is good quality vintage and antique tools, furniture and household things, preferably made in New Zealand and Britain, in times when quality and durability were emphasised.  All things that'll appreciate, or at least hold their value, work well, and never need replacing.  There are items that were plain and utilitarian back in the 30s or 40s when they were made and purchased by average working class families, but at a level of quality that even the richest couldn't buy new in 2011, because it doesn't exist any more, even at the highest end.

I had a new phone a year back, it died. I went back to my 2005 phone, a nokia 5410i the battery lasts a week and I have 2.....the non-nokia power supply died 2 weeks ago, I got a second hand nokia one on trademe for $2.50.  Some ppl laugh when they see it and how old it is.....but 2deg prepay means $30 a year on mobile costs.....1/2 vodafone's old costs btw....

What I dislike about having to buy new is it seems I have no choice.  Often replace with new is not much more than  the cost of repairing or replacing a part.  I just got 2 x 3rd party Uniden batteries for the house hand helds, they were $30 each, a new twin pack phone is just reduced to $59....so I paid the same for un-bradnded two batteries as 2 new Uniden phones...like WTF....

Same with crappy DIY tools....Im buying trade tools now.....they last 3, 4 or more times as long.

regards

Price only works to ration the poor. And it also has an inconvenient side effect of crippling growth prospects. Unless you're a totalitarrean dictatorship who have the luxury of not requirng a financial system that has to be prudentially managed. Chance of bank failure? Just recapitalize it from the exchange reserves you've robbed off your populance thanks to your manipulative exchange rate policy. Why do you think China's economic has been so resilient in the face of so much turmoil elsewhere? We're witnessing the historic irony of the very survival of welfare capitalism being underpinned by a totalitarrean dictatorship.

Yep, there will of course be innovation around fuels but will it stop the crash, I think not.  Even if a new super fuel was discovered today, how long to roll it out, build infrastructure around it etc. The entire global tech system is build on oil. Technology is oil.

Its not just peak oil, try peak water, peak food, peak minerals, peak everything.

What you consistently fail to account for in your world view is that the globe is finite, it has limits. Exponential growth simply cannot continue within a finite system. Even that sand you have your head buried in is finite.

Well if thats true and you have a slice of that, I expect you will become one of the richest men on the planet ever....way richer than say Bill Gates.....100billion US? no more.....anyone, say in a small group of ppl I'd expect to have a net worth of a many.many 10s of Billions each....

Pigs might fly as they say.

Time will tell......but you dont have much time.  Even if you have a complete replacement energy source with an energy return on energy invested equal to fossil oil today (30 to 1) you have to get it into production at about 4% per year of present demand just to break even for fossil fuel decline.  So say thats 5mbpd....thats 2/3ds of saudi arabia or 1.5Iraq'a you have to bring on line every year.....starting in at most 2 or 3 years.

Like I said, pigs might fly.

Im not a flat earther.....I believe the planet is finite and in maths.....so its cant be flat and I would bet with you......

regards

Hey DB : meebee if you send that info ( sustainable liquid fuels )  to me via Bernard : the Hickster has my Email . ..... .

...... or just ignore the resident ranters and post it here , for all to see . It'd make a pleasant change from the daily diet of gloomsterising .......

Did you see that super light fabricated metal , in last week's paper ..... the photo showed it perched atop a dandelion seed-head ...... absolutely amazing some of the advancements in science & tech .

Here is the thing with energy, the only new energy comming into the system comes from the sun.  Energy cannot be destroyed only transformed, it cannot be created.  It takes nature millions of years to make oil, it grows the algae, then cooks it and crushes it. This energy from the algae, the cooking and the crushing was stored in the oil, we release it as we burn it.  How are you going to create another liquid fuel?  The only way, is the difference in what it takes to capture sunlight, and the total sunlight captured. Seriously there are only far far inferior substitutes to fossile fuels.